3 Important Tips For Your Business Success

Business Success

I recently read the very interesting book “Fooled by Randomness” by the Lebanese-American philosopher and financial mathematician Nassim Nicholas Taleb. I find Taleb’s views on the business world and the factors that influence success very inspiring and I would like to share them with you.

Although Taleb’s book is primarily concerned with trading and stock markets, the main findings can still be applied to companies in general. The following article is a summary of (in my opinion) the most important key messages of the book.

1. The world is more unpredictable than most people think. Success is often just a matter of luck.

If a company manages to be particularly successful with a certain product or service, market observers and competitors usually assume that this success is guaranteed to be based on particularly good decisions and ideas. No question about it – good planning is a prerequisite for every new product launch, every company merger and every market entry, and failure is inevitable without it. However, the future can only be planned and forecast to a limited extent. A good pinch of luck is part of every success. If a particular competitor is more successful, it should not automatically be concluded that this is necessarily due to more intelligent decisions. Top managers who take the lead in large companies over a successful period of time are often recruited by other companies – in the hope that they will repeat their successes with them too. Unfortunately, this is often not the case.

For example in sports. If a team is particularly successful during a particular coach’s tenure, they will most likely be recruited by a larger, more famous team.

In doing so, we repeatedly experience that the high expectations placed on the trainer do not come true. A good coach is not the only success factor of a team, but luckily, the given circumstances and the performance of the players are just as crucial for a good end result. And who knows, maybe the coach was just lucky in the previous team?

It is similar to companies that experience a sudden success story and thus attracts a lot of attention. Usually, the competition tries to follow suit and to copy the supposed “success strategy”. In the long run, this is not the best course of action, because the market conditions that led to the particular success can change again just as quickly.

Worse still, a smaller company is taking a huge risk that pays off through sheer luck. When something like this happens, people like to stick the label of genius on the decision-maker and try to learn from their “wisdom”. The problem is that, of course, only winners are reported when the risk pays off. The many losers disappear from the market unseen.

2. Just because a certain scenario seems improbable doesn’t mean it won’t happen. Also, prepare for uncomfortable opportunities.

Every day things happen around the world that has never happened before – and that nobody would have expected. In 2007, very few predicted that the world would soon be hit by one of the worst economic crises, and yet that is exactly what happened.

When faced with a business decision, one always has one foot to face the potentially devastating and very unpleasant consequences. Although every business decision is usually preceded by a risk analysis, most people tend to underestimate unpleasant results and even dismiss them as unlikely in their decision.

However, a company that wants to be successful in the long term must at all costs avoid situations that may have serious consequences or at least protect itself in advance against liability through insurance and legal agreements. So, consider beforehand all of the potential implications of any major business decision you make. Do you have a plan to protect your business if things go wrong?

3. The aim of business decisions should be to maximize the average and long-term expected result.

If you have the choice between different options, the temptation is great to choose the one that promises the apparently more likely success. That seems logical but is unfortunately not always the best choice! It is often better to rely on the less probable solution if it promises greater profits if it is successful or if it does not result in losses.

As an example, let’s assume that option A has a 70% probability of winning £ 10,000 and option B only 30% chance but a profit of £ 100,000.

If A were chosen, the average profit would be £ 10,000 x 0.7 = £ 7,000. With option B, this would be offset by the invoice £ 100,000 x 0.3 = £ 30,000. So even if one could assume that option A is more likely to be profitable, option B is definitely preferable, because average experience shows that one would make a greater profit in the long run.

Insurance is a good example of this opposite situation. Most of the time, insurance seems to cost money and not profit, but if you forego the expense of an insurance premium, there is a very good chance you will suffer a very large loss, possibly of a magnitude that you can no longer expect recovered. So if you look at the average result, it is better to invest the money in insurance.

What if you made the wrong decision?

Let’s take a look at Kodak and the digital camera. Kodak was the first camera manufacturer to develop an industrially manufactured digital camera. The first working model was invented in 1975 and in 1989 the design of the first digital single-lens reflex camera followed. However, the company’s management level was not particularly convinced. They predicted low demand and believed the new technology would only jeopardize their previous core market of analog still and film cameras. On top of that, the company would have to rely on the capital of the early adopters until the device could reach the mass market. From their point of view, the chances for digital cameras to dominate the market were very slim and therefore not worth the investment. What they did not take into account were the consequences for their company if they were wrong. If digital cameras were to replace analog film cameras, they would have the advantage of being the first to be playful, causing huge damage to the company. So if they had properly considered the possibility that they might be wrong, they might have focused more on the digital camera market.

Failure to include this option in their deliberations was undoubtedly one of the major factors that led to the company’s decline and ultimately bankruptcy in 2012.

Modern large companies are usually far more aware of the importance of a balanced relationship between opportunities and risks and are therefore less susceptible to this type of wrong decision. However, smaller companies should also avoid making decisions based on their own instinct and should carry out a detailed risk analysis.

The best way to ensure that you don’t end up on the same track as Kodak, Compaq, Borders, or any other failed company is to stay close to the market and identify and understand the upcoming trends that could affect your industrial sector.

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